The U.S. Securities and Exchange Commission has filed a $112 million suit in federal court here against a national network of tax lawyers, accountants and financial advisors who allegedly induced wealthy investors to buy phony shares in a Wyoming coal mine with promises of hefty tax write-offs.
The fraudulent securities were sold as tax shelters to about 800 investors throughout the country, with assurances of a five-to-one tax credit on their investment, the SEC said.
Among those who bought the sales pitch and may now face audits by the Internal Revenue Service are basketball players Earl Monroe and Spencer Haywood of the New York Knicks, the late Elvis Presley, Allen Funt of Candid Camera and Maryland State Attorney General Francis Burch.
The principal promoters of the scheme were New York tax attorneys George M. Osserman and Paul Garfinkle of Newton, Mass., who later enlisted, among 20 others, Irwin Meyer and Stephen Friedman, coproducers of the Broadway show "Annie" according to the sec suit.
The suit filed here Thursday follows an 18-month investigation in Houston and Boston. In terms of dollars, it is one of the largest suits filed this year by the SEC, the agency said.
The SEC suit claims the promoters of the scheme violated anti-fraud provisions of the Federal Security Act of 1933 and the Security Exchange Act of 1934 because the coal mine securities were unregistered and were sold using "false or misinformation," SEC regional administrator Edward Delaney said.
"The offer was very attractive because you could put up $10,000 and get an immedite $50,000 write-off," Delaney said. "But they were offering this deal saying they had the right to mine coal when in fact the federal government owns 95 percent of the coal" in that Gillette, Wyoming mine.
Documents were also backdated illegally to take advantage of a tax loophole later changed by the IRS, Delaney said. "The tax shelters they were offering were simply not available."
No hearing date has been set yet on the SEC's request for an injunction against the promoters of the coal mine securities scheme.
Meanwhile, the U.S. Attorney here, Edward Harrington, said the case will probably reach his office as soon for possible criminal prosecution. Anti-fraud statutes carry penalties of five years in prison and a $10,000 fine for each violation.
Securities were sold in 1969 by sales representatives from New York to Hawaii, according to the SEC suit. The organization, the federal agency claims, was assembled by Garfinkle and Osserman.
Of $20 million raised in cash, the two promoters split $10,000 with the remainder distributed predominately as substantial commissions for the sales force, the SECC suit said.